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Granston Memo Could Impact Qui Tam Actions

7/26/2018
By
Frederick Benson, Herbert L. Fenster and Peter Hutt II

Photo: iStock

A January Department of Justice memorandum directs prosecutors to more seriously consider dismissing certain qui tam actions brought pursuant to the False Claims Act. While the memorandum’s practical effect on pending and future qui tam actions remains to be seen, its substance provides some interesting and timely insights into a heretofore unresolved constitutional question: whether the FCA’s qui tam provisions run afoul of the Constitution’s Article II Take Care Clause.

Pursuant to the False Claims Act, private whistleblowers may initiate civil actions and collect a portion of any judgment issued against entities found to have submitted false claims to the U.S. government. The Justice Department retains certain rights under the statute for these actions, including the ability to intervene and proceed with relator-initiated cases, as well as the right to move to dismiss an action.

These dismissal rights were the subject of the recently leaked “Granston memo,” which offers guidance to federal attorneys regarding when to seek dismissal under 31 U.S.C. § 3730(c)(2)(A).

Describing the problems that could arise if relators were permitted to pursue certain claims, the memo lays out seven factors federal attorneys should consider as grounds for moving to dismiss qui tam actions, and expressly admonishes them to consider doing so in appropriate cases.

On their face, these factors suggest that one of the memo’s primary goals was to curb scenarios where qui tam litigation threatens the department’s ability to effectively control enforcement of the False Claims Act.

These issues have constitutional implications. In Vermont Agency of Natural Resources v. Stevens, the Supreme Court expressly reserved the question of whether the FCA’s qui tam provisions violate the Take Care Clause. Recent litigation has revisited the otherwise dormant question, with the Granston memo providing important insights into how the current state of qui tam bears on the constitutionality issue.

The question turns on whether the qui tam scheme has diverted a constitutionally impermissible quantum of control from the executive to relators. In Morrison v. Olson, the Supreme Court held that in order to avoid a violation of the Take Care Clause, a statute divesting the executive of prosecutorial discretion must “give the executive branch sufficient control … to ensure that the president is able to perform his constitutionally assigned duties.” In the context of a high-profile and closely monitored investigation, Morrison concluded that for-cause removal authority was sufficient to permit the executive to “take care that the laws be faithfully executed.” By contrast, the Justice Department’s responsibility to monitor the qui tam bar’s “enormous docket” of cases presents a much closer question.

The Granston memo purports to be an outline for department attorneys on how to move for dismissal in appropriate cases. However, its substance highlights multiple ways by which relators are circumventing the government’s attempts to consistently implement the statute. The introduction notes that despite “record increases” in qui tam filings, the department’s intervention rate has remained static, implicitly suggesting a lack of control over the expanding qui tam plaintiffs’ bar.

The consequences for failing to control qui tam relators are also enumerated, including “significant resources in monitoring [non-intervened] cases,” costs associated with “produc[ing] discovery or otherwise participat[ing],” and “adverse decisions that affect the government’s ability to enforce the FCA.” Indeed, the apparent need to issue the Granston memo in the first place is strong evidence that the unwieldy qui tam clauses have divested the executive of the ability to “take care that the [FCA] be faithfully executed.”

Concern about the government’s ability to tame relators featured prominently in the Fifth Circuit’s recent decision in U.S. ex rel. Harman v. Trinity Industries Inc. In Trinity, the relator alleged that a manufacturer of guardrail end terminals had failed to disclose certain design changes to the Federal Highway Administration and state governments. The court ultimately concluded that any purported failure to disclose was immaterial. It also expressed dismay at the relator’s ability to pursue his case to that stage given the government’s evident conclusion that no fraud had occurred.

If the Justice Department did indeed conclude that no fraud occurred, Trinity plainly illustrates the government’s inability to control meritless qui tam litigation.

In contrast with Trinity, defendants in the Tenth Circuit’s Polukoff v. St. Mark’s Hospital case have explicitly challenged the FCA’s qui tam provisions on Take Care grounds. After flagging the argument as being “o[f] particular note” and considering an intervention brief by the government, the Tenth Circuit concluded the argument was forfeited, perpetuating this question’s status as an unresolved issue of potentially paramount importance.

The Granston memo provides an insider perspective on how the Justice Department views its control of the False Claims Act docket, and may well play an important role as courts continue to grapple with the question reserved in Stevens. Given the document’s potential import, contractors would be well advised to familiarize themselves with its provisions when defending against ongoing and future qui tam litigation.

Frederick Benson is an associate, Herbert Fenster is senior of counsel and Peter B. Hutt II is partner at Covington & Burling LLP.

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